The difference between the straight-line method of depreciation and the diminishing
balance method of depreciation is as follows:
BASIS OF STRAIGHT-LINE METHOD DIMINISHING BALANCE
DIFFERENTIATION METHOD
Calculation Easy or It is easy to calculate the It is difficult to calculate the
Difficult rate of depreciation. rate of depreciation.
Tax Purposes This method is not This method is recognised
recognised by the Income by the Income Tax
Tax Department, and Department, and therefore,
therefore, it is not applicable it is applicable for Income
for Income Tax purposes. Tax purposes.
Suitability This method is suitable for The method is suitable for
those assets in relation to those assets in relation to
which (a) repair charges are which (a) the amount of
less (b) the possibilities of re-repairs and renewals
obsolescence are less. goes on increasing as the
assets grow older and (b)
the possibilities of
obsolescence are more.
Book Value The book value of the asset The book value of the asset
becomes zero or equal to its does not become zero.
scrap value.
Calculation of Depreciation is calculated at Depreciation is calculated
Depreciation a fixed percentage on the on the reducing balance of
original cost of the asset. assets.
Amount of Depreciation The amount of depreciation The amount of depreciation
charged is same for every goes on reducing year after
year. year.
other name The method is also known This method is also known
as Fixed Instalment method as reducing balance method
or original cost method. or written down value
method.
Formula The straight-line method of Written down value method
depreciation formula: formula: Rate of
Cost of the Asset - Residual Depreciation / 100 X Book
Value / Useful life of the Value
Asset.
